May 06, 2015 Top Story

Delaware Rapid Arbitration Act Promises Speedy Arbitrations

If awards are not issued within 120 days, arbitrators face fee reductions

Henry R. Chalmers

A powerful new tool now exists for companies seeking quick, efficient, and private resolution of business disputes. The Delaware Rapid Arbitration Act (DRAA), enacted in April 2015, streamlines the process for initiating arbitrations, sets tight deadlines for completion, automatically confirms awards without court intervention, and provides speedy and final resolution of challenges directly to the Delaware Supreme Court. And the DRAA cleverly ensures quick completion of the process by imposing financial penalties on the arbitrator if an award is not issued within 120 days of commencement, with very limited exceptions.

The DRAA is available for almost any dispute involving at least one business organized under Delaware law or with its principal place of business in Delaware. To invoke the act’s benefits, the parties need only agree in a signed writing that their arbitration will be governed by the DRAA. And true to its purpose as a business dispute resolution mechanism, it may not be used for consumer or homeowner disputes, nor is it available for most shareholder actions.

Decreasing Expense and Delay

The DRAA eliminates many of the strategies parties have used in the past to halt arbitration proceedings or impose unnecessary expense and delay. For example, under the DRAA, the arbitrator has exclusive power to determine the scope of the arbitration, and courts are divested of jurisdiction to enjoin the process or entertain interim challenges. Parties also are relived of the obligation to initiate legal proceedings to confirm their arbitration awards, as they are automatically confirmed within 20 days of the decision.

By default, challenges to an award are limited to direct appeal to the Delaware Supreme Court, constrained to the grounds set forth in the Federal Arbitration Act. The only alternatives available are arbitral appeals or no appeals at all, either of which may be available only if explicitly provided for in the arbitration agreement.

“I applaud these efforts to keep the courts out of the dispute resolution process,” says Bruce Rubin, Portland, OR, cochair of the ABA Section of Litigation’Alternative Dispute Resolution Committee. Rubin would take it a step further, though, by “building into the statute a penalty for appealing and losing. For example, if a party does not prevail on appeal, award attorney fees to the prevailing party in connection with the appeal.” 

Allowing Flexibility

Within this tight framework, however, the parties are given great freedom to structure the arbitration as they see fit, with narrow default provisions where their arbitration agreements are silent. Parties, for example, may define the number of arbitrators and their qualifications. They also may designate lay arbitrators—e.g., accountants or engineers—whom the DRAA empowers to retain counsel to make rulings on issues of law.

Rubin urges corporate counsel to use this flexibility to limit motion practice and discovery: “I’d rather see an arbitration clause that expressly prohibits summary judgment motions and curtails, as much as possible, what discovery is available.” 

Although the arbitration will be governed by Delaware law, the parties may choose their substantive law, and they can locate the hearing anywhere in the world. They also can use any organization, or no organization, to administer the proceedings.

If provided for in the arbitration agreement, the arbitrator can issue subpoenas and commissions for third-party discovery. Otherwise, the arbitrator will be limited to compelling attendance and document production from the parties. Arbitrators will have unwaivable authority to issue interim relief and, unless constrained by agreement, broad powers to fashion ultimate remedies.

Financial Penalties for Tardy Awards

With very limited exceptions, the entire arbitration process must be completed within 120 days, or the arbitrator’s fees are reduced. This provision may not be waived by the parties. Louis F. Burke, New York, cochair of the Section of Litigation’s Alternative Dispute Resolution Committee, likes many aspects of the act, but worries that the strict time limit “may not be reasonable in some situations where events outside of the parties’ control add inevitable delay.” Burke notes that the act allows an arbitrator to petition the Delaware Court of Chancery for relief from the financial sanction in “exceptional circumstances,” but he questions “whether that provides sufficient and realistic protection for unusual situations.”

Businesses have long complained that the benefits of arbitration are being lost to ever-expanding proceedings that become indistinguishable from full-blown litigation. The DRAA aims to solve many of those problems, restoring speed and efficiency to the private dispute resolution process.

Henry R. Chalmers is an associate editor for Litigation News.

Keywords: arbitration, alternative dispute resolution, business dispute, Delaware Rapid Arbitration Act (DRAA)

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